Following consultation, the tax and NIC advantages of salary sacrifice schemes will be removed from April 2017, with limited exceptions.
Following consultation, the tax and NIC advantages of salary sacrifice schemes will be removed from April 2017, with the exception of arrangements covering pensions, childcare, cycle-to-work and ultra-low emission vehicles (ULEVs). Whilst we await HMRC’s full response to the consultation, it is expected that the option to buy and sell holiday will also remain unaffected by the new legislation.
The measures will negate the tax and NIC advantages for employer and employee, which have previously derived from salary sacrifice and flexible benefit arrangements and are expected to net the Exchequer £85 million in 2017/18 rising to £260 million by 2021/22.
The Government has chosen to press ahead despite the challenges raised by more than 350 employers and other interested parties in the responses to the consultation. Indeed, many employers and employees will be disappointed to see the removal of the advantageous treatment for popular benefits such as company cars, medical screenings and workplace gyms.
We welcome the exclusion of ULEVs, which we highlighted in KPMG’s response to HMRC’s consultation last month. Similarly, the transitional measures for salary sacrifices agreed prior to April 2017, which protect the tax and NIC effect of such arrangements until April 2018 (and until April 2021 in the case of cars, accommodation and school fees) may also be regarded as a pragmatic and welcome move.
Nevertheless, the targeting of salary sacrifice will affect a large number of employers and employees, who will see a rise in their tax bills as a consequence. There also remains some uncertainty around the way in which the Government intends to differentiate between a salary sacrifice and a simple renegotiation of an employee’s package. There is, therefore, the potential that this could be the cause of some debate in the coming months and years.
Tel: +44 (0)20 7311 3363
Tel: +44 (0)20 7311 1437
KPMG has launched a state of the art digital platform that enhances your experience and provides improved access to our content and our people, whatever device you are on.